ALEX BRUMMER: Time to end the Reading HBOS small business scandal cover-up with a full judicial inquiry

After years of stonewalling, Lloyds finally is admitting that management at the bank knew far more about the large fraud at its Reading branch, which destroyed the lives of scores of small business customers.

In agreeing to pay compensation to the whistle-blower Sally Masterton it is effectively accepting that there has been a cover-up.

There are many reasons why Lloyds may have wanted to keep quiet about what it knew and when.

The most obvious is that executives wanted to do nothing which potentially could impede a £4billion rescue rights issue by HBOS and the takeover by Lloyds Bank in the face of the financial crisis in 2008.

Lloyds has been shamed into setting up a compensation scheme of £100m in the wake of the scandal although the distribution has not gone as smoothly

But such expediency by ambitious bosses at the time of the merger reflects appallingly on the executives at the time, as well as on the due diligence by legal and accounting firms and the Labour government which promoted the deal and waived takeover rules to usher it through.

The allegations in Ms Masterton’s dossier, that has become known as the ‘Project Lord Turnbull’ report are crystal clear. HBOS chose to ‘conceal’ the fraud ahead of the takeover.

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Almost all of the senior executives and managers at the time have left the bank. But details circulated after the current chief executive Antonio Horta-Osorio took the helm in 2011.

Clearly, all those directly involved in the fraud have paid or are paying the price. Six people were jailed for a combined 47 years for fraud in February 2017.

But as is often the case with white-collar crime the attempted whitewash can be as damaging as the original wrongdoing. Lloyds has been shamed into setting up a compensation scheme of £100million although the distribution has not gone as smoothly.

It has also commissioned a retired High Court judge Dame Linda Dobbs to look into whether the issues raised were properly investigated by the bank and reported to the authorities.

The trouble with such ‘independent’ probes is that they tend to plough the land so that official inquiries find it harder to access witness statements.

The Financial Conduct Authority (FCA) is conducting its own separate probe using section 166 of the Financial Services and Markets Act. But such inquiries take years to complete (because of insufficient resources) and are confidential.

A previous section 166 inquiry – into the bad behaviour of Royal Bank of Scotland towards clients at its fearsome Global Restructuring Group – was only published when it was leaked by a Parliamentary committee.

FCA chief executive Andrew Bailey, to his credit, understands the shortcomings but is unable to act alone.

The Government needs to recognise the seriousness of the allegations surrounding Lloyds, the shadow it cast over many leading figures still active in business and the integrity of the British financial system.

It must set-up a judicial inquiry, with the right to call witnesses and take public evidence, which subsumes the work of the other piecemeal probes.

Nothing short of this is acceptable.

Ashley alert

Not a day passes without a quoted company suffering a share price shock.

Earlier this week outsourcing group Interserve joined the 90 per cent club as its share price plunged by that much from its peak.

The latest victim is Debenhams, which has seen its market value lacerated and reduced by 80 per cent in the last year alone.

As we learnt during the financial crisis when consumer banks fell like dominos, the markets are rarely wrong on these matters.

One doesn’t have to be a retail genius to recognise that Debenhams is a victim of an outdated department store model.

But it didn’t have to be like this. Upmarket department stores such as Selfridges and Harvey Nichols demonstrate that by investing in the stores and the brand it is possible to defy the enemies of business rates, grasping landlords and online rivals.

The troubles at Debenhams are down to former private equity ownership, feeble leadership and short-term thinking.

One thing we can be sure of: a takeover by biggest investor Mike Ashley of Sports Direct, will not save it from its past.

Mad Maxx

Brand-LED, no-frills retailer TK Maxx – purveyor of ties to this writer – still believes in the magic of Oxford Street in London, with or without House of Fraser and Debenhams.

Property Week reports it is coughing up annual rent of £2.5million to take control of New Look’s previous flagship store.